According to Paragon’s latest Buy-to-Let index, rental incomes rose by 2.5% in December which brought the annual rate to 19.4%, representing the fastest annual growth rate since the index began in 2001.

Over the past quarter, rents rose by 8.1%. The regions with the highest rental incomes were London (£20,949), the South West (£14,691) and the South East (£11,630).

Gross rental yields rose in December to 6.2%, which was its highest level since April 2006. Paragon believes this marks the start of an upward trend in rental yields over 2008. Northern parts of the country performed strongest - the North achieved the highest yields in December (7.1%) followed by Yorkshire and the North West both at 7%.

Average investment property values have also continued to rise, although at a slower rate than rental incomes. Property values have experienced modest growth from £187,164 in November to £187,748 in December, which is a month-on-month increase of 0.3%.

The average property purchased 12 months ago has generated an overall return of 21.3%, taking account of both capital gain plus rental income. Total returns on a 12-month investment are 21.3%.

Terraced houses continued to generate the highest yields (6.7%), followed by semi-detached and detached properties, both at 6.1%. Flats fell slightly behind at 5.5%.